InvestmentNews reported that an Ameriprise Financial subsidiary, Securities America Inc., and one of its RR's, lost an arbitration case to a client who sued over the sale of private placements of securities - issued by Medical Capital Holdings Inc. - that regulators have alleged were fraudulent.  

What's somewhat uncommon is that the $1.2 million award includes $250K for punitive damages - an award element that's not often seen in FINRA arb cases.  Rounding out the award:  $734K in compensatory damages, and $171K in attorney and expert witness fees.

Claimant's lawyer, Scott Silver, called it a powerful win, pointing out that punitive damages in this award shows that the 3 arbitrators were “shocked” by SA's action involving Medical Capital notes. [C-I Note:  Of course, this is something one would expect from an attorney who represents over 100 clients in similar arbitration claims - seeking, all-told, >$35mn in damages against Securities America.  Good Luck.]

While the arb panel gave no reasoning for the award, it did offer comments about their decision, a point of great interest to other clients suing Securities America:  

“The panel's decision is based on what was actually known by Randall Talbott and Securities America Inc. at the relevant times and is not based on what additional information could or could not have been discovered by respondents regarding the subject investments or the company offering the investments,” according to the award. “The decision is based on what was actually known by Randall Talbott and Securities America Inc. at the relevant times.”

    Securities America, RR Talbott.   Securities America, with about 1,900 reps and advisers, is owned by Ameriprise Financial Inc., one of the largest retail brokerage firms in the country. A spokesperson said the firm disagreed with the outcome;  "Securities America does not believe it acted inappropriately in the sale of these investments."

This arbitration award appears to be the first involving Securities America's sale of "PP's" issued by Medical Capital, which the SEC charged with fraud in 2009.  Dozens of independent broker-dealers sold private Medical Capital notes, which raised $2.2 billion from 2003 to 2008.  Securities America was by far the biggest seller for  Medical Capital, with 400 brokers selling almost $700 million of notes.  Medical Capital is in bankruptcy, and the receiver estimated that about half of investors' money, $1.1 billion, is gone.

Securities America has tried to pin blame for the losses on Medical Capital Holdings Inc., the issuer of the private placements.  Lawyer Bruce Bettigole:  "If there's a problem here, Medical Capital is to blame, not Securities America.”   Mr. Bettigole's a partner at Sutherland Asbill & Brennan.  SA's CEO Jim Nagengast said: "We feel very strongly we did industry-leading due diligence and are vigorously defending" the firm and its advisers.

Mr. Talbott has 11 other pending customer disputes involving the sale of Medical Capital notes, but he's not named as a defendant in many of the arbitration cases, according to BrokerCheck.  Mr. Talbott said he didn't know anything about the award, and added that the matter was “very unfortunate."

    Future Litigation.   Securities America could be on the hook for millions of dollars more in legal damages involving the sale of private placements before the market collapse of 2008.  Regulators from both Massachusetts and Montana also are suing the firm.   [InvestmentNews, 1/3, "Arbitrators Hit ..."]